Fast-moving change for FMCG industry: how to protect and enforce your IP rights

Fast-moving consumer goods (FMCG) are products with a short shelf life. This is due either to high consumer demand or because the nature of the product implies rapid deterioration.

All products that deteriorate within a short period (eg, fruit, vegetables and dairy products) are classed as FMCG, but so too are products that are produced quickly and in large numbers with the aim of being marketed at a particular time or for a certain campaign (eg, ice cream in the summer or sweets at Christmas).

The backbone of these products is the supply chain. The 21st century has brought new forms of consumption, production and distribution, and optimum functioning of the supply chain is essential to ensure the best results for consumers, as well for production and distribution companies.  

At present, the growth of the FMCG sector is so significant that producers of all sizes are seeking to reduce dependence on distribution chains by joining together to deliver directly to consumers. This has resulted in a high demand for transport and logistics support. Strict compliance with storage and delivery times, proper refrigeration and packaging of transported goods, as well as an adequate inventory management system are necessary to ensure that FMCG reach distribution points and consumers without difficulty.

Due to the new purchasing habits of users and the emergence of technologies that are transforming communication habits with customers, the FMCG industry is experiencing a period of intense change. The market and the opportunities that FMCG generate – plus the growth of small and medium-sized enterprises thanks to e-commerce and increasingly personalised services – are generating a new global consumption dynamic, which requires the participation of new actors and new technologies. But are IP laws ready to deal with these new trends?

Intellectual property and FMCG

IP rights are critical in the FMCG industry because companies operating in this sector rely heavily on brand recognition and brand loyalty for their success.

It makes sense for IP rights to be fundamental to the long-term success strategy of any consumer goods company. Thus, such companies use numerous IP rights, including copyrights and trade secrets; however, there are two strategic phases for FMCG:

• product development; and
• commercialisation and marketing.

In terms of product development, patents, as well as industrial designs and utility models, represent a fundamental industrial right. Effective patent protection can, depending on the industry, represent the most important asset of consumer goods, especially in specialised sectors such as pharmaceuticals and electronics where products require time and investment for development and therefore take longer to turn a profit.

Patents may be less useful in highly innovative industries with rampant turnover because the lifecycles of such products are short. By the time a company has obtained a patent and can legally enforce it through litigation, the product in question may already be obsolete.

Patents represent an exclusive right for a limited period. It is important to combine the development of these invention rights with other IP rights, such as trademarks or copyrights. Even after a patent has expired, consumers can continue to search for a particular product, regardless of similar competitive products in the market, if a company has been diligent in cultivating and maintaining trademark rights for its products. These rights, associated goodwill and the connotation of consistent quality help to establish brand awareness and loyalty, which enhances commercialisation and marketing.

A product’s brand, including its commercial image, is generally the most visible and long-lasting IP right that consumer goods companies must use and exploit. Trademarks are relevant to companies in all sectors of the consumer goods industry and are often the most important differentiator between competitors.

Growing innovation in FMCG methods and distribution channels typically involves two threats against IP rights:

• counterfeiting; and
• parallel imports.

Counterfeiting

Counterfeiting is a practice in which goods (generally of inferior quality) are manufactured and sold as an imitation of the IP rights of a third party, without their permission, resulting in consumers buying a counterfeit product under the impression that it is genuine. In fact, the trade in counterfeit products has become as profitable as the trade in illegal drugs and narcotics and, as an additional benefit to counterfeiters, carries fewer risks.

It is well known that counterfeiting affects the luxury goods market; however, this is proving to be an outdated line of thinking. In recent months, the industry in general has witnessed an increase in FMCG counterfeits.

Statistics show that more than 15% of the world's most counterfeited brands are in the FMCG sector. The main concern about this rise is the health and safety risks faced by unsuspecting consumers. It is vital therefore that brand owners of consumer goods are aware of this and take the necessary measures to protect their brands, as well as their consumers, from product imitations by ensuring that they do not reach the market. This will save money as well as protecting the brand’s image and reputation.

The war against counterfeiters is ongoing and may never end, but trademark owners must equip themselves with the necessary tools provided by local laws and international IP treaties. A collaborative approach between trademark owners, assisted by IP lawyers and Customs, health and consumer-protection agencies, as well as criminal ones, is necessary to reduce counterfeiting.

Grey market

Parallel imports occur when a legitimate product acquired abroad is imported to the import destination without the permission of the rights holder. In other words, these are legitimate goods, not pirated goods. In Mexico, parallel imports are permitted; however, foreign trade regulations created to combat piracy act as a legal obstacle to such imports.

Parallel imports have always generated great debate worldwide, because confusion exists as to whether they are permitted. They are also referred to as ‘grey market’ goods, but unlike pirated goods, these goods are genuine (ie, their origin is traceable to the trademark owner under the ‘exhaustion of rights’ theory regarding when a product becomes available at the first point of sale).

While grey market goods often do not represent the same level of danger to consumers and trademark owners as counterfeit products, they may still be detrimental to consumer goods companies. For example, such companies cannot control the quality of products that are resold in the grey market. In fact, grey market goods can damage the brand image and reputation of a company if the product was formulated differently for the intended market and is not well received or fails to work in the new market.

As such, grey market goods may not comply with the official standards of the destination country (eg, failure to comply with government impositions of labelling, advertising and composition).

Comment

The FMCG industry has a long history of growth through major brand, but the model that drove this sector’s success has undergone a major transformation due to changing consumer needs, behaviour and preferences.

Adequate IP protection enables rights holders to cope with the constant development of the FMCG industry, which translates into economic growth and competitiveness. Therefore, seeking policies in favour of the culture of protection and enforcement of IP rights, as well as fully identifying potential risks against such exclusivity of rights through appropriate coordination and support with specialists in the field, as well as establishing policies of zero tolerance to infringement and counterfeiting, is essential for the success of companies engaged in the development and marketing of FMCG.

While IP legislation is probably a step backwards from the dynamic and rapid development of world trade, the implementation of adequate defence policies using the tools currently provided by such legislation represents an infallible formula for success in a sustainable manner.